The Profitability of Health Insurers and the Effectiveness of Hospital Value-Based Purchasing

Ben H.

Hatched by Ben H.

Jul 12, 2023

4 min read


The Profitability of Health Insurers and the Effectiveness of Hospital Value-Based Purchasing


The first quarter of 2023 proved to be profitable for publicly traded health insurance companies, with UnitedHealth Group leading the way. UnitedHealth Group's net income increased by 16% to $8.1 billion, and revenue saw a 15% growth to $91.9 billion. This success was primarily driven by the company's insurance arm, UnitedHealthcare, which experienced a 14% rise in net income to $4.3 billion. Additionally, Optum, UnitedHealth Group's healthcare services subsidiary, saw a net income increase of 19% to $2.7 billion.

Insurers' Profitability and Growth:

UnitedHealthcare's success can be attributed to the higher membership in Medicare Advantage and exchange programs, along with lower medical expenses. The company's U.S. membership increased by 4.6% to 47.6 million. Optum's revenue growth of 25% to $54.1 billion was driven by an increase in OptumHealth patients and OptumRx prescriptions. As the largest employer of physicians with 70,000 on board, Optum plans to add another 10,000 physicians this year. Moreover, Elevance Health reported a net income growth of 16.6% to $2.8 billion, fueled by the expansion of government-sponsored insurance and its pharmacy benefit manager, CarelonRx. With 48.1 million members, Elevance Health holds the largest membership among all carriers.

Health Insurance Startups:

Health insurance startups also made progress in narrowing their losses during the first quarter. Alignment Healthcare's net loss shrunk by 8.4% to $37.3 million, with revenue increasing by 27.1% to $439.2 million due to the growth in Medicare Advantage membership. Clover Health, however, experienced a slight decline in enrollment as the company scaled back its ACO REACH participation. Despite this setback, Clover Health managed to reduce its net loss by 3.8% to $72.6 million. Bright Health, on the other hand, saw a 23% increase in revenue to $756.3 million, and its net loss improved by 42% to $94.7 million. However, the company is currently exiting the health insurance business due to severe financial problems. Oscar Health, following a strategy of hiking premiums, improving risk-code capture, and renegotiating vendor contracts, witnessed a decrease in net loss by 48.7% to $39.6 million, with revenue increasing by 51% to $1.4 billion.

The Effectiveness of Hospital Value-Based Purchasing (VBP):

The Hospital VBP Program, established under the Affordable Care Act (ACA) in 2009, aims to reward acute care hospitals for delivering high-quality care in the inpatient hospital setting. This program adjusts payments to hospitals under the Inpatient Prospective Payment System (IPPS) based on their performance in delivering quality care. Participating hospitals have a percentage of their Medicare payments withheld (currently 2%) to fund value-based incentive payments. The program evaluates hospitals based on measures such as mortality and complications, healthcare-associated infections, patient safety, patient experience, and efficiency and cost reduction.

However, the complexity of this administration raises questions regarding its effectiveness. The inclusion of Medicare severity diagnosis-related groups (MS-DRGs) and claim-by-claim adjustments adds layers of complexity to the program. Additionally, the choice of metrics to measure hospital performance, such as patient safety and cost reduction, may be up for debate.

Actionable Advice:

  • 1. Streamline the VBP Program: To improve the effectiveness of the Hospital VBP Program, policymakers should consider simplifying the administration process. Reducing the complexity of MS-DRGs and claim-by-claim adjustments can make the program more efficient and easier to implement.
  • 2. Evaluate Performance Metrics: It is essential to reassess the metrics used to measure hospital performance. Stakeholders should engage in discussions to determine whether the current metrics accurately reflect the quality of care provided and incentivize hospitals to focus on areas that truly matter.
  • 3. Increase Incentive Percentage: Considering the success insurers have had in the first quarter, policymakers should explore the possibility of increasing the percentage of Medicare payments withheld for value-based incentive payments. This could further motivate hospitals to prioritize high-quality care.


The first quarter of 2023 showcased the profitability of health insurers, particularly UnitedHealth Group, along with notable progress made by health insurance startups. However, the effectiveness of the Hospital VBP Program in incentivizing hospitals to deliver high-quality care raises concerns. By streamlining the program, reevaluating performance metrics, and potentially increasing the incentive percentage, policymakers can work towards improving the overall quality of care in the healthcare system.

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